Not all price hikes are created equal. When Netflix raised its monthly fee by $2 in 2016, it caused an uproar from customers on social media and sparked a class-action lawsuit. In contrast, few people bat an eye when Porsche consistently raises the base price of its flagship Porsche 911 by thousands of dollars each year.
Both Netflix and Porsche make conscious decisions about their price increases, but in the sports ticketing business, we now find ourselves facing price increases brought about by a force out of our control: new tax legislation. On Jan. 1, the Tax Cuts and Jobs Act went into effect, eliminating the ability of corporations to deduct the cost of event tickets and luxury suites. Previously, corporations could deduct 50 percent of their entertainment expenses. This means an effective price increase of 20 percent on tickets and suites for many corporations.
For teams and venues, that means corporate ticket holders — who typically occupy the most expensive seats and suites — may factor in the impact of these tax changes and reduce their spend accordingly. Warren Buffett once said, “If you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” What is Buffett’s perspective on a 20 percent increase? It seems that prayer lines are forming in a few front offices around the country.
One ticketing executive with a small-market MLB team has fielded several calls from suite holders complaining about the new tax code. He has been advising these companies that the loss of the ticket deduction should be more than offset by the lower overall corporate tax rate (reduced from 35 percent to 21 percent for many corporations). But so far, companies seem to be viewing the cost of tickets on a stand-alone basis — not in the context of a broader tax cut — when considering whether to make a premium ticket purchase or renew a lease.
Aside from lowering prices or adding amenities, teams will need to figure out how to work around this effective price increase on tickets and suites, especially as companies are committed to ensuring a positive ROI on their ticket investment. According to InviteManager, 43 percent of corporate tickets are never used, and many corporate ticket holders are now more aggressively pursuing options to sell their suites and tickets. While the secondary market for tickets is relatively liquid, transparent and easy to use, the secondary market for suites is much less mature, though growing rapidly.
Properties need to provide more value to clients in wake of tax change.getty images
The decision makers behind the purchase of luxury suites are often the same people who rent out their second homes on Airbnb or purchase shared hours with a private jet service. They have become savvier about stretching their dollars on high-value assets, and suites and tickets are no exception. In light of recent trends, these premium-seating customers expect viable solutions for reselling unused suites and seats, and teams must begin to offer solutions. If teams don’t respond to their customers’ desire for flexibility on resale, it will be challenging to continue to command premium prices for long-term suite leases and season tickets.
Keeping corporate clients happy
Now that tickets are more expensive, customers will expect more value from their sports experiences. Providers of those experiences should work with their customers to personalize not only the experiences themselves, but also the value derived from them.
If clients are only attending a few games a year, those games need to bring the wow factor. Otherwise, the clients aren’t getting the value they think they deserve for the price they’re paying, and they’re more likely to avoid those experiences in the future.
Teams have ultimate control over their buildings, which means they can get creative when it comes to unique perks. If clients are going to be paying more for tickets, they will be expecting unique experiences they can’t find elsewhere. The teams that can provide those experiences will be the ones that stand out and keep customers coming back.
Also, some companies will keep their tickets but not utilize them to their full potential. When those companies feel the pressure of tax-break removal, they might see their sports purchases in black-and-white — keep it all or sell it all. When they have options, though — such as the ability to sublease their units when they don’t plan to attend games or swap dates and sell to fellow fans — they’ll feel less pressure to sell everything. Even if infrequent attendees don’t take advantage of all these options, they will feel more comfortable knowing they have them.
The fallout from the exclusion of entertainment deductions in this new tax bill remains to be seen, but sports properties cannot afford to wait until the dust settles. By providing value to clients and giving them control over how they use their assets, sports teams can boost the ROI on corporate tickets and suite leases, maintain prices, and keep their customers happy over the long term.
Scott Spencer is the founder and president of Suite Experience Group.
